South Africans turning to credit cards – as other options dry up

South African consumers are still turning to their credit cards to make ends meet – but room to take on more debt is running out.

According to Nedbank’s assessment of broad money supply and credit extension in South Africa, in general, household credit growth eased to 6.5% in June from 6.7% in May, the lowest it has been since a year ago, Nedbank said.

The slowdown was mainly driven by an easing in the unsecured credit categories, with overdrafts moderating to 2.2% yoy from 4.5% in May.

Although personal loans have remained resilient, they also eased to 7.3% y-o-y in June, following growth of 8% in the previous month.

Home loans eased to 5.8%, while instalment sales and leasing finance were steady at 7.6%.

This data shows that South Africans are not taking out as many loans as they used to. However, they are still seeking credit.

Bucking the wider trend are credit cards – the only household credit category that edged higher, increasing to 9.2% from 8.9% in May.

This has been a major concern flagged by many of South Africa’s banks – with concerns raised in the South African Reserve Bank’s Financial Stability Review (FSR) published in late May.

The FSR noted that, despite tighter financial conditions, credit growth – particularly for unsecured credit – remains elevated for households and businesses in South Africa.

According to the FSR, during the fourth quarter of last year, unsecured credit grew at its fastest pace since 2019, registering a 9% year-on-year increase, which could be a sign of distressed borrowing.

The banking sector’s non-performing loan ratios, which are indicative of the quality of a bank’s outstanding loans, have been trending upwards — which, the FSR says, “deserves close monitoring”.

Groups operating in the debt counselling sector have also flag a significant rise in households defaulting on their debt, and have warned that lenders, such as banks, are likely to tighten their lending criteria.

Absa warned in its latest reporting that it is expecting a surge in credit impairments as consumers start to buckle under the pressure, with interest rates already at a 14-year high. The bank said it expects its credit loss ratio to increase substantially – by between 1.25% to 1.3% in the first six months of the year. 

This mirrors warnings given by rival banks Nedbank and Standard Bank.

According to Nedbank, while households are still turning to their credit cards, it anticipates that credit demand as a whole will continue to moderate for the rest of 2023 as households run out of room to take on more debt.

“Households will be cautious to take on additional credit during this period as the cumulative interest rate hikes since November 2021 impacts their ability to service both new and outstanding debt,” the bank said.

“Furthermore, weak growth prospects and the subdued labour market will contain income growth and depress consumer confidence.”

Read: South Africa’s middle class is drowning in debt – and stresses are mounting